The figure below represents the U.S. market for steel imports from Korea. The Korean government provides an export subsidy of $25 per ton, and Korean firms use the subsidy to reduce their export price to the United States to $375 per ton.
Suppose the United States now imposes a countervailing duty on the imports of steel at the rate of $25 per ton. Which of the following is true in this context?
A. Korea's loss of well-being exceeds the U.S. gain of well-being.
B. The world price level and volume of trade become similar to the free-trade condition.
C. The well-being of the world as a whole is reduced by $750 million.
D. The producers in the United States lose, whereas the producers in Korea gain.
Answer: B
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